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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowRepublic Airways Holdings said today it will buy struggling Midwest Airlines for $31 million in cash and debt, the second time in two days it has sought to rescue an ailing airline.
Yesterday, Republic said it would bid $108.8 million to take Frontier Airlines out of bankruptcy.
Republic Chairman and CEO Bryan Bedford said he plans to keep the Midwest name, and intends to restore Midwest to the size it was about a year and a half ago. He said he intends to get Midwest flying back to cities it had dropped, citing the recently announced return of flights to Los Angeles and Louisville, Ky., set to begin in August.
Adding Midwest and Frontier are big risks for Republic, and not just because of concerns about the individual carriers.
Until now, Indianapolis-based Republic has flown under contract for other big airlines: American, Delta, US Airways, United, and Continental. That meant its main job was controlling costs, not filling seats. But by adding Frontier and Midwest, Republic exposes itself to travel downturns and competition from other airlines.
“The point is revenue diversity,” Bedford said of the new additions. He cited the combination of Delta Air Lines Inc. and Northwest as well as the talk about the possibility of more airline mergers, saying, “the fact is, if the people we partner with are merging, our diversity goes the other direction. We want more diversity in terms of where we harvest revenues, not less, and this is a necessary step we felt we had to take to reorient our business model to changing industry conditions.”
Republic said it would pay $6 million in cash and extend a $25 million note to Midwest owner TPG Capital. The note is convertible to Republic shares at $10 per share.
Midwest had owed TPG $31 million, so the sale basically repays TPG for $6 million of that debt and refinances the rest.
Republic said it expects the deal to close in one month to six weeks.
Oak Creek, Wis.-based Midwest has been struggling with other carriers encroaching on its Milwaukee hub. AirTran has an extensive schedule there, and Southwest plans to add flights there later this year.
As Midwest has shrunk, it has hired Republic to do much of its flying.
Republic plans to replace all of Midwest’s Boeing 717s with Embraer 190s once the separate unions that represent pilots and flight attendants merge their ranks, Bedford said. Republic pilots and flight attendants are Teamsters. Midwest crews are represented by the Air Line Pilots Association and the Association of Flight Attendants. Republic has roughly 2,000 active pilots, Midwest about 100, Bedford said.
As recently as last summer, Midwest’s fleet included 12 MD-80s and 25 Boeing 717s. But it grounded all the MD-80s last year, and currently flies only nine of the 717s.
Republic shares spiked after the news hit about a half-hour before markets closed. They rose $1.90, or 47.3 percent, to close at $6 each.
AirTran Holdings Inc. made a hostile takeover bid of $78 million for Midwest in June 2005. AirTran raised its offer several times and by August 2007 it had an estimated $445 million on the table. Each offer was rejected.
Fort Worth, Texas-based TPG Capital ultimately bought Midwest for about $450 million in January 2008, including a minority stake held by Northwest Airlines, which Bedford said is also selling its shares.
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